Do share buyback announcements influence stock prices? A multi-faceted event study analysis

Purpose Share buybacks are commonly believed to inject buoyancy into stock prices. This study addresses gaps in the literature by examining price behaviour across multiple dimensions, including the buyback mechanism, company size, buyback magnitude and industry classification. Additionally, it explores the impact of COVID-19 on the stock returns of buyback firms. Design/methodology/approach Event study methodology (ESM) is utilized to capture the price reaction to buyback announcements from 2016 to 2023. Furthermore, the impact of COVID-19 on abnormal returns is analysed by employing statistical tests. Findings The study reveals significant differences in average abnormal returns (AARs) between open market repurchases (OMR) and tender offers, indicating unequal shareholder gains from different buyback methods. However, no significant differences in AARs are observed between the manufacturing and IT sectors, suggesting similar shareholder returns across industries. Additionally, COVID-19 does not significantly influence the stock returns of buyback firms. Practical implications The implications of the present study are substantial and multifaceted. The findings enrich literature on market efficiency in India, confirming semi-strong efficiency and adding insights on buybacks and the impact of global crises. Furthermore, the study underscores the need for stringent insider trading regulations and better oversight of share buybacks to protect investors and ensure market fairness. Originality/value This study contributes to the literature on the price-support role of buyback announcements in the Indian equity market by examining their impact on stock returns, analysing the influence of COVID-19 and utilizing sample segmentation to explore diverse market reactions to different types of buyback announcements.